In considering the future shape of Australian naval shipbuilding it’s worthwhile to recall the adage that those who ignore the past are condemned to repeat it.
Julian Kerr | Sydney
Although Spanish philosopher, essayist, poet and novelist George Santayana died 63 years before Prime Minister Tony Abbott’s announcement in August of a long-term, continuous surface ship naval shipbuilding plan, his dictum seems particularly relevant to this undertaking.
The proposed plan involves construction in Australia from 2018 – two years earlier than anticipated – of about 20 of a new class of offshore patrol vessel (OPVs) to replace the 13-strong Armidale patrol boat fleet, and work beginning in 2020 – three years earlier than previously planned – on Future Frigates to succeed the eight-strong ANZAC class.
Although the Future Submarine, planned under Project Sea 1000 to replace the six Collins boats, was described by the Prime Minister as the third pillar of what would be a strong and sustainable industry, it was not specifically linked by him to either a continuous build or to onshore or offshore construction.
Included in the announcement was “investment” of an additional $1.2 billion in the troubled Air Warfare Destroyer (AWD) program – one way of characterising the amount necessary to cover the anticipated budget overspend that has raised questions about the commercial viability of domestic naval construction.
It’s here, and from the earlier on-time on-budget ANZAC frigate program, that lessons learnt and still being learnt about surface warship construction can be beneficially applied to the forthcoming OPV and Future Frigate projects and their demanding timelines.
And it’s here that the first cautionary note emerges, with a comment by Colin Thorne, General Manager Land and Maritime Systems at the now defunct Defence Materiel Organisation (DMO) that more time should have been spent in the AWD program on pre-production systems engineering processes, including preliminary design reviews, detailed design reviews, and production readiness reviews.
This was just one of numerous shortcomings identified by Thorne in the course of a robust presentation to an ASPI Future Surface Fleet conference in April, where he detailed the challenges inherent in a program where the ship designer (Navantia) had not previously exported a design for construction and the shipbuilder (ASC) had never built a surface ship.
As pointed out in a 2014 Australian National Audit Office (ANAO) report, Navantia’s decision not to join the three-way AWD Alliance grouping (government-owned ASC, Raytheon Australia and the DMO) had detracted from the Alliance’s ability to collectively and collaboratively manage risks. There had also been an incomplete alignment of incentives for sharing of best practices and for reducing costs, from design conception through to shipbuilding and ship acceptance.
Such comments, along with reports of tensions between the partners, are likely to have spelt an end to the alliance model for any future naval shipbuilding projects, while ensuring that the designer and builder in such undertakings, though not necessarily one and the same, must be contracted to work in lockstep.
The surprise selection in 2007 of Navantia’s F-100 Alvaro de Bazan class frigate design as the AWD platform was itself less than straightforward, preceded as it was by an apparent preference for an evolved design proposed by the US naval architecture firm Gibbs and Cox based on a scaled-down Arleigh Burke Flight II guided missile destroyer.
In words which it may have regretted later, the Alliance declared at the time that the choice of a design already in service with the Spanish navy “substantially reduces the cost and schedule risks traditionally associated with a project of this size and complexity”.
"Thorne said it was impossible to overstate the DMO’s frustration with the slow rate of ASC reform and its interpretation of the gain/pain mechanism of the Alliance as cost-plus."
However, according to sources close to the program at the time, while more than $200 million invested by the DMO in risk reduction achieved worthwhile outcomes around the Aegis-based combat system, from a ship point of view attention was very much focused on the US design which was still a work in progress.
“Up to 500 people were working on the Evolved design – which was really a new design – a contract design for that ship was being prepared, and that’s where a lot of the Sea 4000 Phase 2 money went,” one informed source stated.
“Then people got nervous, they wanted an off-the-shelf design for comparison for Second Pass and it needed to be costed, so late in the piece a small team was put together – only 40 people – to do a ship estimate for the Spanish option.”
DMO’s Thorne separately told ADM he had received the impression anecdotally that the Evolved Design was the frontrunner “then it was realised it was going to be too complex, too expensive, and it fell out of favour overnight”.
Credit: ASC
Rod Equid, Alliance chief executive, referred to Warren King, then DMO’s AWD program manager, as commenting on a conspiracy of optimism.
“People believed the design was going to be built to print and be perfect, the combat system changes weren’t going to have any impact, having a nice new shipyard would compensate for a new organisation and any difficulties for the first-of-class,” Equid told ADM.
Costings flawed
According to other program sources, costings for the Australian build were not based on any advice from Navantia. This resulted in flaws in the intended delivery schedule and early cost estimates, thus setting an unrealistic base for judging subsequent performance. The differences in shipbuilding cultures, styles and technologies between Navantia’s shipyards and those in Australia were not recognised.
Illustrating tensions between the DMO and ASC in addition to those between ASC and Raytheon, Thorne said it was impossible to overstate the DMO’s frustration with the slow rate of ASC reform and its interpretation of the gain/pain mechanism of the Alliance as cost-plus.
"Future projects should therefore see three or four leading designers of relevant platforms selected for competitive funded project definition studies, followed by a Request for Tender (RfT)."
While not addressing these remarks directly, Equid noted it was the warnings of cost overruns and schedule delays delivered to the DMO and government by ASC and Raytheon that had resulted, at least in part, in the so-called Winter/White review by former US Navy Secretary Don Winter and Australian industrialist John White, a former head of the successful ANZAC frigate program of the 1990s.
While only a brief and presumably sanitised summary of the Winter/White review has been released by government, it’s understood to have identified seven fundamental issues affecting AWD construction - most of them relevant to future projects.
These are:
- Specially adapted ships from an overseas designer with no experience of exporting/transferring its design and production technology
- A production run of three ships, with little chance of achieving significant productivity improvements
- Failure to adopt a comprehensive, modern information management system
- An Alliance arrangement placing the DMO on both sides of the contract and diffusing responsibility
- Selection of a government-owned company that had never built a surface combatant, with no fixed-price performance obligations• Failure to include the ship designer in the Alliance
- Starting with a “greenfield” shipbuilding site.
While these are negative points, sources close to the earlier 10-ship (two of which were for NZ) ANZAC program believe its success – and potentially that of future projects – was derived from adherence to clear and straightforward principles, the first of which involved the establishment by government of realistic top-level requirements that would be achievable with available and proven technologies.
In line with the Anzac model, future projects should therefore see three or four leading designers of relevant platforms selected for competitive funded project definition studies, followed by a Request for Tender (RfT), the sources suggested.
“Then you seek a fixed price from the last two in the race and you negotiate final contracts ready for signature. At that point you’ve got sufficient information on the suitability of the design for the navy’s requirements and the price that each is offering to build in Australia with appropriate use of Australian industry, and you make a selection,” one source declared.
“In the construction phase you need people who are experienced in doing these things in Australia and can take charge; you certainly should not rely on a government-owned corporation, we all know that government ownership of corporations doesn’t deliver good industrial outcomes.”
This particular point was echoed by other industry sources, notwithstanding the management of ASC’s shipbuilding and submarine sustainment activities being separated last year and AWD productivity improving by more than 30 per cent between ships 2 and 3, with further gains expected on the third.
Fate of ASC
Although the Department of Finance has said ASC is not for sale, its facilities will clearly play a major role in the industry’s future and a strategic review ordered in June seems likely to produce a more focused and commercial outlook.
In the first instance this is expected to be fostered either through a partnering arrangement or by the insertion of a managing contractor to drive improved productivity through to the conclusion of the AWD program in early 2020 – coincidentally the projected start of Future Frigate construction.
Utilising ASC facilities for Sea 1000 could be achieved either by partnering, by subcontract, by lease or by acquisition of the appropriate part of the facilities, Dr White, now chairman of Future Submarine contender ThyssenKrupp Marine Services Australia (TKMSA), told the Senate Economic References Committee in July.
At the request of Defence Minister Kevin Andrews, German-owned TKMSA had prepared a paper predicting the additional facilities and the number of designers, managers, trades and non-tradespeople that would be required at ASC should TKMSA be managing it to build submarines. This paper had also been provided to and discussed with Finance Minister Mathias Cormann, given the Finance portfolio is the owner of ASC.
Taking a leaf from the Anzac program and given that only 20 per cent of the cost of designing, building and delivering a submarine was labour, TKMSA would, if selected, utilise multiple sites to make best use of the skilled labour located around Australia.
Well-publicised problems with Collins class construction at ASC were driven by decisions well beyond the control of the Australian workforce or management,
Dr White stated. Provided the necessary material, information, direction and training was in place, their output and cost was competitive with the world’s best.
Building the full complement of submarines in Australia would be cheaper than having to establish separate project management, facilities and workers to construct the first two overseas, Dr White stated.
Perhaps surprisingly, he told the committee that TKMSA would find it difficult to achieve a continuous build from eight submarines – the number currently favoured in media reports – even if planned refits and potential upgrades were included in the time frame.
“It becomes quite an easy thing to contemplate with more than 10, and preferably 12,” he said. “You can always get a continuous build program by extending the time you take to build each submarine, but there is an old saying in the construction industry that time is money, and a quickly-built project is the lowest-cost, most profitable project, so it is not prudent to just achieve a continuous build, necessarily, by extending the build schedule.”
Comparable costs
Confirming that construction of a smaller number of submarines would increase unit costs, Sean Costello, CEO of fellow Sea 1000 contender and French-owned DCNS Australia, pointed out to the committee that the fundamental input costs to shipbuilding were very comparable from one country to another.
The price of labour by the hour for a highly skilled tradesman in an Australian shipyard was similar to the price of labour in a North American or European shipyard. The same applied to commodities and subsystems and parts arriving for integration.
“The areas where costs are not well-controlled is in shipyard productivity and controlling risks through a program of technology transfer between shipyards,” Costello noted. “The more you can do that and the better you can do that, the more you can control costs in shipbuilding.”
Given Costello’s recent management experience with ASC and the AWD program, he speaks from bitter experience. The quality of technical data packs between the shipbuilder and the shipyard are a well-known issue.